Donald Trump has blocked Broadcom's £100bn Qualcomm takeover over security concerns

Randal Sanchez
March 14, 2018

Broadcom's offer fell apart in dramatic fashion over the last week-and-a-half. As a part of its hostile takeover bid, Broadcom had nominated 6 people to Qualcomm's board.

"In both the definitive merger agreement that Broadcom provided to Qualcomm and in the revised version that Qualcomm sent back to Broadcom on February 26, 2018, one of the closing conditions was that Broadcom redomicile to the USA, and notably, in neither party's draft was the closing of the proposed acquisition conditioned on CFIUS clearance", the company said in a statement.

In the light of a Bloomberg report that painted Broadcom as the likely victor of all six board seats it was seeking, Qualcomm was more than happy to reschedule its shareholder meeting to April 5.

The reaction of the White House is unusually quick and surprising. Broadcom blasted the delay as lowly "engagement theater".

Donald Trump just stepped into the global 5G "arms race". Broadcom clarified that it is in agreement with the CFIUS process.

Its chief executive, Hock Tan, was welcomed to the White House as recently as November, when he announced plans to redomicile Broadcom in the US.

Of course, Qualcomm has done a great job of positioning itself as an early leader in 5G technology, one of the things that made it attractive to Broadcom and the reason the US government ultimately decided it shouldn't fall into foreign ownership. Qualcomm didn't respond to requests for comment.

The order came despite Broadcom's assurances that it would complete its move to the United States by early April, ahead of a previously-planned Qualcomm shareholder vote on the $117 billion deal - meaning any national security concerns were moot. Last month, Broadcom raised its offer to $121 billion in its curiosity to acquire the company, Qualcomm refused again by saying that this buyout will reduce the technological competitiveness and will influence both companies badly.

The Treasury Department said in a letter over the weekend that Broadcom had violated a Committee on Foreign Investment in the USA order on three separate occasions by failing to give advance notice before taking actions such as lodging takeover-related securities filings in the United States.

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However, while acknowledging that national security concerns about the deal were "defensible", the San Diego Union-Tribune in an editorial today questioned whether other motivations also played into the decision.

If the companies drag their feet on unwinding this tangle, the Attorney General is instructed to enforce this order by "any steps necessary".

The White House was forced a few days ago to postpone the general meeting of shareholders of the USA semiconductor company to torpedo the maneuver.

What's next for Broadcom and Qualcomm?

For the second time in barely a fortnight, Donald Trump has cited "national security" to justify a significant decision affecting business. In fact, it was more probable that Intel would target smaller acquisitions for now. It must be pointed out that while Broadcom is a Singapore-based company, its ties to China must have been deemed as being too close.

The Chinese company has in three decades grown from an electronics reseller into one of the world's most important communications companies, with leading positions in telecoms gear, smartphones, cloud computing and cybersecurity. The firm's board could decide to "reposition M&A efforts towards smaller, less needle-moving deals" or "meaningfully increase shareholder return", wrote the analyst, adding that "either way, we think AVGO's stock should work from here".

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. Bloomberg explains it best in one word: None.

Shares of Intel are up 9.8% so far in 2018. Qualcomm shares fell 4.3 percent.

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